The effectiveness of reserve requirement as a tool of the Central Bank to control money supply

• Main Authors: Balagot, Ma. Socorro S., Elimin, Linda, Guinto, Rosanna Teresa E., Villatuya, Richelle C.
• Format: text
• Language: English
• Published: Animo Repository 1991
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/17294
• Institution: De La Salle University

This research study seeks to answer this question: Is Reserve Requirement the most effective tool of the Central Bank to control Money Supply? The study aims to compare the effectiveness of the Reserve Requirement with the other tools used by the Central Bank to control Money Supply. The specific objectives of the study are:1. To find out the other means of controlling Money Supply2. To describe how the Central Bank controls the bank's Reserve Requirement3. To determine how the Discounting Policy is used4. To illustrate the use of Open Market Operation5. To know how Fiat Money Authority to issue paper money is exercised6. To understand the use of Moral SuasionIt is hypothesized that:1. The Reserve Requirement is the most effective tool2. The Reserve Requirement is not the most effective tool3. The Discounting Policy is the most effective tool4. The Discounting Policy is not the most effective tool5. The Open Market Operations is the most effective tool6. The Open Market Operations is not the most effective tool7. The Fiat Money Authority is the most effective tool8. The Fiat Money Authority is not the most effective tool9. The Moral Suasion is the most effective tool10. The Moral Suasion is not the most effective tool The comparative and descriptive methods were used in the study to find out the effectiveness of Reserve Requirement as a tool of the Central Bank to control Money Supply. The researchers made use of secondary materials like books, journals and Central Bank Circulars. The researchers proved that the Reserve Requirement is not the most effective tool of the Central Bank to control money supply. As what appears in the analysis of data, the elasticity of money supply with respect to the required reserves was computed. It shows that for a period of ten years, the changes in the amount money supply were inelastic to the changes in the amount of the required reserves. It means that money supply is not sensitive to any change in the required reserves.